As establishments in the hospitality industry are facing liquidity problems, Thailand’s Central Bank is currently studying a “warehousing concept” that will help these businesses through a special kind of commercial loans.
The Bank of Thailand’s deputy governor for financial stability, Ronadol Numnonda, said that the BoT is currently studying how to deploy a warehousing concept that will involve asset management companies and commercial loans.
Specifically, commercial banks will offer commercial loans guaranteed by funds safeguarded by asset management companies. This arrangement will allow banks to offer loans at rates that are considered affordable by both parties.
Governor Runonda estimated that the BoT will finish its feasibility study by end of this year. After that, it will finalize the business model and get it ready for deployment.
Because of financial instability incurred from lack of revenues, many of the assets owned by certain hotel chains have been frozen by their management companies. It is where the warehousing concept can come in, as the BoT believes the model can accommodate both good and bad assets.
When finalized, the concept will make use of either an existing asset management firm, or incorporate a new company as suggested by the Senate Joint Standing Committee of Commerce, Industry, and Banking.
Either way, the assigned asset management company will be in charge of disposing of the assets and using the funds to offer loans to the affected hotels. The trick, however, is to come up with pricing that is fair to both the potential borrower and the loan issuer.
In relation to that, the Bank of Thailand says that it does not see underpricing of the assets as a problem in this arrangement.
“[A]ssets still have to be classified as performing loans. Therefore, business operators have enough bargaining power, differing from bad asset sales during the 1997 Asian financial crisis,” Mr. Ronadol said.
The Siam Commercial Bank is also looking at setting up its own asset management company to purchase assets of hotels with liquidity problems, but it is waiting for the Bank of Thailand to finalize its warehousing concept first before making a move.
The SCB currently has THB16 billion total of outstanding loans owed by hotels suffering financial problems as a result of the COVID-19 pandemic. Up to four of these clients have already closed down permanently.
The government has been repeatedly urged to provide assistance to the tourism sector, as the current efforts to reopen to foreign tourism has not made revenues and employment equally available to the industry.
Kiriya Kulkolkran, a lecturer at the Faculty of Economics Thammasat University, said that supply chain employees are feeling the impact of the COVID-19 more by lack of employment due to the severe drop in the number of foreign tourist arrivals.
Mr. Kiriya further elaborated that only 4% of businesses in the tourism sector has benefited from the Special Tourist Visa.
As he expects the financial impact of the COVID-19 to last for up to three years, Mr. Kiriya said it is important for the government to come up with special financial aid especially for hotels in Phuket.